Danone Reports Strong H1, Raises Outlook

Sales of the Fresh Dairy division increased by 6.6% in the second quarter of 2010, on a like-for-like basis. This performance was driven by a broad-based volume growth of 9.3%, to which all regions contributed with at least mid-single digit growth or more.

Jul 27 2010 --- Danone has reported that sales increased 6.9% in Q2 and 7.0% in H1 10 with volume growth of 8.9% in Q2 and 9.8% in H1 10. Trading operating margin, at 15.30% was in line with the margin of FY 09, while underlying fully-diluted EPS increased 7.7% to € 1.38 in H1 10. FCF from operations increased 34.9% to € 858 mln in H1 10. FY sales outlook increased to at least +6%, margin and FCF outlook was reconfirmed.

Chairman’s comment “Our results in the first half of this year confirm our strong start in 2010. We continue to invest in countries, products and brands with a strong potential: baby nutrition in Asia, dairy products in the US, in Brazil as well as in Russia where the Danone-Unimilk alliance provides us with significant long term growth opportunities. In the Waters and Medical Nutrition divisions we continue to identify new growth opportunities in emerging markets as well as new business models. We simultaneously continue to focus on productivity, which is critical in light of the volatile raw material prices. Lastly, our cash-flow generation keeps increasing steadily. Investments, productivity and cash flow are essential as they build the performance of today, but also the Danone of tomorrow, more global, more efficient, stronger, at the service of its mission and of value creation. Our mid-year performance allows us to increase our outlook for 2010, targeting a sales growth of at least 6%, a stable operating margin and a free cash flow growth of at least 10%.”

Sales of the Fresh Dairy division increased by 6.6% in the second quarter of 2010, on a like-for-like basis. This performance was driven by a broad-based volume growth of 9.3%, to which all regions contributed with at least mid-single digit growth or more. As anticipated, the negative value effect of -2.7% was significantly lower than in the preceding quarter, as the anniversary of the Reset program is lapsed in several countries. Particular strong growth momentum was shown in the US, Brazil, Mexico, Argentina and Japan, while Spain remained affected by a particularly challenging environment.

The Waters division posted solid sales growth of 4.8% like-for-like, thereby continuing the underlying improvement observed since mid-2009. Volume growth of 7.8% was offset by a value effect (mainly country mix) of -3.0%. While volume growth continued to be mainly driven by the emerging markets (54% of the sales of the division), Western Europe delivered positive volume growth with relatively strong performances in France and Germany. The environment remained very challenging in Japan and Spain, thus having a continued negative effect on value (mainly country mix) growth.

The Baby Nutrition division continued to deliver high-single digit growth (+8.7%) on a like-for-like basis, with all regions contributing and volume growth (+8.4%) remaining the main growth driver. The division gained market shares in most markets, notably in the UK, Argentina, Brazil, France and Turkey. The Milks category continued to deliver double-digit growth while the weaning food category remained stable, thereby negatively impacting the growth pace in southern Europe. China, Indonesia, the UK and Poland remained the top contributors to growth, while the performance in Russia continued to improve.

Medical Nutrition continued to perform well with a sales growth of 10.8%, on a like-for-like basis, which continued to be entirely driven by volume growth (+10.5%). All regions contributed to the growth, with particularly strong performance in Eastern Europe and Latin America. Growth was supported by all product categories with paediatrics and the gastro intestinal allergy product range still outgrowing the divisional average.